Trump’s Second Term | Industries and Sectors Positioned for Growth

Donald Trump plans to steer the economy toward a new trajectory, which will definitely affect the stock market. For better or for worse, higher tariffs, tax cuts, and deregulation will affect many industries. Therefore, today, we will explore the industries and sectors positioned for growth under Trump’s second term and the overall changes that stock traders can expect.

How Trump’s second term will affect the economy

Economic policies envisaged by the Trump administration (so-called ‘Trumponomics’) could substantially change the stock market environment and the overall economy. The three most fundamental policies among these include:

• Protectionism, such as including new tariffs towards the EU, Canada, and Mexico and intensifying the trade war with China;
• General tax cuts, in the vein of the Tax Cuts and Jobs Act enacted during his first presidential term;
• Deregulation aims to limit government interference and spending, especially in environmental, financial, and healthcare regulations.

A significant part of what we know about Trumponomics’s effects on the stock market comes from experiences during Donald Trump’s first presidency. 

However, Trump’s first presidential term experienced two events that shaped the stock market much more than his administration:

• Trump inherited the longest period of economic growth in U.S. history;
• The subsequent COVID-19 pandemic crashed the economy into a recession.

As we cannot precisely distinguish the effects of economic policies and these two events, we cannot know precisely how the economy will respond to another turn toward protectionism. However, we can draw some conclusions and highlight industries and sectors positioned for growth due to these policies during Trump’s second term.

Which sectors benefited during Trump’s first term?

If we exclude the COVID-related recession, Trump’s first presidential term witnessed stock market growth.

The Tax Cuts and Jobs Act of 2017 slashed corporate taxes, boosted corporate earnings, and inspired investing confidence. The new economic policy contributed to record highs in the most representative indices, such as the S&P 500, DJIA, and NASDAQ.

Furthermore, deregulation sets favorable conditions for investments in sectors like traditional energy, technology, and finance. Rolling back subsidies for the renewable sector disrupted the industry while cutting penalties for fossil fuels left room for oil and natural gas production growth.

Trumponomics also had adverse effects. For example, tariffs and the escalating trade wars significantly hurt import-dependent industries. That said, protectionist policies left room for domestic manufacturers to recover and prosper.

Overall, the Trump presidency had a net positive effect on the stock market. The market returned 13.73% on average each year during Trump’s first term. This rate is the third-highest in modern American history when compared to other presidents, after Clinton (15.18%) and Obama (13.84%). 

Industries and sectors positioned for growth during Trump’s second term

Judging by his statements and proposed measures, Donald Trump will likely pursue policies similar to the ones implemented during his first presidency. However, this time, his party will control both houses of Congress, allowing him to enact more far-reaching policies more quickly.

It is interesting to see how party control of Congress affected historical market performance. When you compare CAGR rates, Democratic presidents did more on average for the S&P 500 index than Republicans. However, median values favor Republican presidents over Democrats.

Considering everything, let’s see which sectors and industries are poised for growth in Trump’s second term.

1. Financial

The candidate most likely to benefit from deregulation and corporate tax cuts is, unsurprisingly, the financial sector.

If financial institutions like banks witness less compliance costs and more lending capabilities, their potential earnings will increase. Furthermore, less corporate taxes will increase profits throughout the financial sector. Even the higher interest rates introduced as a potential measure against inflation benefit financial institutions, as they can lend high and borrow low. 

In fact, Trump’s proposed economic policies are almost tailor-made to match the interests of Wall Street. The new regulatory environment will favor the financial sector, imposing fewer obstacles to their work and requiring banks to face fewer restrictive measures like fines and audits. 

In short, companies in the financial sector are one of the most likely to prosper under Trump’s second presidential term.

2. Defense

Trump has been hawkish about national interests and the military and has likewise filled his cabinet with similar-minded politicians, such as Representative Mike Waltz, the proposed national security adviser. 

The new administration will likely increase the military budget to reinforce national defense capabilities. More budget means more spending in the sector, with ample new opportunities for military, aircraft, space defense, and cybersecurity stocks. Furthermore, Trump has announced more pressure on America’s NATO allies to boost their military spending, which is likely to increase demand for American-made weapons and equipment worldwide. 

3. Energy

Deregulation will introduce a new trend in the energy sector: less obstacles for fossil fuels, less rewards for renewables.

Additionally, Trump has been an ally of oil, coal, and natural gas interests, particularly in domestic production. The demand for traditional energy sources will likely increase, while higher costs for imported parts and fewer subsidies, in general, could significantly backtrack the previous ‘go green’ initiatives in the United States.

Finally, Trump is a strong proponent of U.S. energy dominance. His efforts to boost production and export more fossil fuels might bolster domestic energy producers’ revenues. The increased production will be reflected in more pipeline infrastructure, and the overall traditional energy sector is expected to thrive in Trump’s second term. 

4. Crypto

Trump expressed skepticism about crypto during his first term. However, he has shifted his stance since then and embraced a friendly stance toward digital currencies. In fact, the crypto market welcomed his electoral victory by surging the price of Bitcoin to an all-time high.

Furthermore, he stated he would make the U.S. ‘the crypto capital of the planet.‘ How will he do this? Mainly through deregulation efforts and a more favorable environment for crypto exchanges and startups. Coupled with streamlined compliance and limited government oversight, these efforts will encourage broader crypto adoption and support for digital financial companies. 

Due to this conversion of attitude, major crypto exchanges and financial companies investing in digital finance will likely grow once Trump takes over. 

5. Technology

Trumponomics has a softer stance on mergers and acquisitions than what Biden’s administration had to offer. Deregulation comes with less regulatory pressure, and cases like Google’s antitrust suit could have an epilogue in which the big tech is more likely to win.

The incoming administration’s emphasis on continued American technology dominance could provide even more leeway in addition to the general deregulation and tax cut efforts. The new economic climate will encourage tech companies to invest more in advances and innovation, while increased tariffs might spur a wave of new semiconductor and hardware production companies on American soil. 

However, be mindful of the scenario in which tariffs on semiconductor imports harm the sector before any improvement occurs.

6. U.S. domestic manufacturing

Trump’s ‘America First’ initiative, along with deregulation, tax cuts, and tariffs, will highly incentivize domestic manufacturing. Virtually all these policies encourage companies to return production capabilities within the U.S. borders from manufacturing capitals like China and Mexico.

Furthermore, deregulation could bring down environmental and labor costs, albeit at the expense of the workforce and ecological sustainability efforts. The spurred growth of domestic production capabilities might raise demand for nationally made materials, tools, and machinery.

Tips and strategies for investing during Trump’s second term

Knowing which industries and sectors are positioned for growth in Trump’s second term is vital, but you should also consider how you approach investing under the Republican president. Here’s our take on what you should do:

• Diversify investments. Diversifying is vital whenever you expect a change in the stock market. The more varied your portfolio, the lesser the change will affect you;

• Avoid import-reliant sectors. Harsh tariffs hurt industries that rely on global imports. Be careful with import-sensitive manufacturing and companies that rely on semiconductor imports, such as car-making and electronics. Retaliatory tariffs will also hurt the farming industry;

• Consider resilient sectors. Some companies fare better during economic uncertainties than others. Consider staple consumer goods producers, solid domestic technology companies, and essential utilities;

• Remember the fundamentals. Despite the volatility, solid fundamentals will remain the decisive factor in investing. Avoid emotional reactions and keep the steady investing course.

• Tariffs will help some sectors. Companies stifled by imports will face increased demand once foreign goods become pricier. In Trump’s case, they benefit industries like domestic steel production and construction companies;

• Keep yourself informed. It is crucial to remain informed about trade policies, tariff changes, the trade gap, and inflation. Do your research to stay ahead of the situation.

Disclaimer: The content on this site should not be considered investment advice. Investing is speculative. When investing, your capital is at risk.

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